Allied Fin-Citi case: SAT tells SEBI to pass orders by July 17

Our Bureau Mumbai | Updated on July 03, 2019 Published on July 03, 2019

The Securities and Appellate Tribunal on Wednesday asked SEBI to hear all the parties involved in a clearing and settlement dispute arising from sale of mutual fund units worth ₹380 crore that were kept as collateral with Allied Financial Services.

Allied Financial, a brokerage, had taken position in Nifty options and sold off the mutual fund units belonging to clients to settle its own derivative trading obligation. Citi Mauritius, Morgan Stanley, Premji Invest and BNP Paribas bought the contracts of Allied and the trade was guaranteed by NSE Clearing. IL&FS Securities, which was the main broker, had topped up the margin with the NSE after Allied showed mutual fund units in the account. The catch was that the mutual fund units belonged to a client of Allied — the Dalmia Bharat group.

IL&FS had approached the Supreme Court seeking an annulment of trade as it was unable to recover money from any side. The apex court stayed the settlement while the NSE refused to declare the trade as default and dip into its settlement guarantee fund to pay Citi and others.

Citi Bank on Monday appealed against trade annulment claiming that it had done legitimate transaction and the clearing corporation stood guarantee. Citi also claimed that delay in squaring off the contract will have a cascading effect on the clients that it will have to settle. SAT has now put the settlement in abeyance till July 22 and asked SEBI to hear all the parties and pass the final order by July 17.

The question of annulment of trade on preponderance of fraud was to be decided by the NSE Clearing but that too will be SEBI’s onus now, legal expert involved with the matter said.

Published on July 03, 2019

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